You Can Use Escalation Clauses Once Again

The landmark case of Tedford v. Dempsey, 437 So.2d 410 (Miss. 1983), is notable primarily as the case that firmly established the age of 21 as the ultimate age of emancipation in Mississippi.

Tedford is also the case that encouraged lawyers and judges to incorporate child support escalation clauses into their PSA’s and judgments. This is the specific language from the opinion:

In the child support provisions of their separation agreements, the parties generally ought to be required to include escalation clauses tied to the parents’ earnings or to the annual inflation rate or to some factored combination of the two. Though under the structure of the irreconcilable differences statute freedom of contract is exalted, there are limits. The statute requires that the chancellor find that “the parties have made adequate and sufficient provision by written agreement for the custody and maintenance of any children….” Tedford, at 419 (citing Miss.Code Ann. § 93–5–2 (Supp.1982). (emphasis added)).

That seems to me to be pretty clear. An escalation clause can be tied either (1) to the parents’ earnings, or (2) to the annual inflation rate, or (3) to some factored combination of the two.

As happens from time to time in Mississippi jurisprudence, however, subsequent cases dealing with escalation clauses morphed the “or” language in Tedford into a mandate that all of the factors must be addressed, with the result that most lawyers and judges gave up entirely trying to incorporate escalation clauses because it was practically impossible to draft one that could successfully pass appellate scrutiny. The key case requiring all of the factors to be taken into account was Bruce v. Bruce, 687 So.2d 1199, 1202 (Miss.1996).

The case of Short v. Short, decided by the MSSC on February 6, 2014, overruled Bruce and the line of cases that required all of the factors to be considered, and returned the law of escalation clauses to its status under Tedford. Justice Pierce’s opinion stated:

¶ 15. For clarity, we overrule Bruce’s interpretation that escalation clauses must be tied to all four factors. Id. We focus on the original language in Tedford providing that escalation clauses should be “… tied to the parents’ earnings or to the annual inflation rate or to some factored combination of the two.” Tedford, 437 So.2d at 419 (emphasis added). We affirm Wing in that the creation of escalation clauses should begin with a consideration of the inflation rate, the noncustodial parent’s increase or decrease in income, the child’s expenses, and the custodial parent’s separate income. Wing, 549 So.2d at 947. However, we are not mandating that escalation clauses be specifically tied to all four factors. Foremost, escalation clauses must adequately and sufficiently provide for the custody and maintenance of the child pursuant to Mississippi Code Section 93–5–2. Tedford, 437 So.2d at 419.

The MSSC reversed the COA’s earlier ruling in the case.

An interesting point in Short was that Mr. Short was seeking, in essence, to use his escalation clause as a de-escalation clause due to a loss in income. You can read the opinion yourself for its reversal of the chancellor’s refusal to grant a downward modification based on the paarticular language in these parties’ agreement. Escalation clauses are, based on Short, modifiable, with the caveat that courts take a dim view of modifying agreements that have previously been approved by a chancellor.

Before you include an escalation provision in your client’s case, carefully weigh its possible impact on the future obligations of your clieent, if you are representing the paying party. If you will study the agreement in Short, you can see, with the benefit of 20-20 hindsight, that perhaps not enough attention was given to the possibility that he might suffer a catastrophic drop in available funds to meet his contractual obligation.